Detroit bankruptcy trial starts

DETROIT -- An attorney representing Detroit urged a judge Wednesday to allow the city to fix staggering financial problems through bankruptcy, arguing that without it about 65 cents of every tax dollar eventually would be gobbled up by debts and other obligations.

The trial, expected to last days, brings the bankruptcy case to its most crucial stage since Detroit in July made the largest public filing in U.S. history. If a judge finds certain legal requirements were met, the city would get the green light to restructure $18 billion in debt and possibly slash pensions for thousands of people.

Hundreds of protesters walked in a circle outside the courthouse with signs that said, "Bail out people not banks."

In his opening statement, attorney Bruce Bennett said he "could stand here for hours" to describe the "mountain of evidence" that shows Detroit is insolvent. Without relief, he added, 65 cents of every dollar residents pay in taxes could be needed to address the problem, leaving little for everyday services for 700,000 residents.

"This is one of those cases where the data speaks very clearly and persuasively on its own. It needs no gloss," Bennett told Judge Steven Rhodes.

He was followed by a line of attorneys, representing unions, pension funds and retiree groups, who didn't seem to challenge the ruinous condition of Detroit's finances but zeroed in on a key test under bankruptcy law: Did the city negotiate with creditors in good faith before the Chapter 9 filing? No way, they said.

The judge stood to get a better view as Jennifer Green, an attorney for pension funds, used a screen to show months of emails and memos from state and city officials talking about bankruptcy preparation, not fruitful talks with creditors.

Sharon Levine of the American Federation of State, County and Municipal Employees said talks between Detroit and its unions should have lasted months, not weeks. Another lawyer, Babette Ceccotti with the United Auto Workers, said the bankruptcy filing was aimed at using federal law to attack pensions, which otherwise are protected under the Michigan Constitution.

"Chapter 9 was already a forgone conclusion" before the city last met with creditors a week before the filing, Green said.

Bennett, however, said emergency manager Kevyn Orr's team was cooperative and open to suggestions.

"The city created a database, populated it with enormous amounts of information and did not withhold information to get an edge," he said. "The city did act in good faith in all of the negotiations. The negotiations were unsuccessful."

The first and only witness Wednesday was Gaurav Malhotra, an analyst from Ernst & Young. He said he warned Orr last summer that Detroit likely was facing a 10-year budget deficit of $3.9 billion, mainly due to pensions and health care costs.

Detroit is being run by Orr, a bankruptcy specialist who was appointed in March by Gov. Rick Snyder. They will be trial witnesses, along with Police Chief James Craig and outside financial consultants.

Michigan's emergency manager law gives Orr wide discretion to operate the city, from hiring people to deciding how services are delivered. Many local elected officials, including Mayor Dave Bing, are on the sideline and have no role in the trial.

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